Sending remittances is still expensive globally, with an average cost of 6.20 per cent of the amount sent, surpassing the Sustainable Development Goals (SDG) target of three percent. This underscores the need for significant change in the industry. In the past 10 years, remittance flows to Africa have doubled, reaching $100 billion in 2022, more than the funds received through Official Development Assistance (ODA) and Foreign Direct Investment (FDI). This number continues to grow because of the effort by various regulators to encourage their diaspora to send remittances.
African regulators are evolving as enablers with laudable initiatives like the Nigeria-Egypt fintech bridge and regulatory sandboxes in Egypt, Ghana, Nigeria, South Africa, and Uganda. The Pan African Payment and Settlement Systems (PAPSS), which enables instant, cross-border payments in local currencies between African markets, is another great initiative. Despite such progress in enabling Fintechs like Flutterwave to build payment solutions faster and in removing the need to source hard currency for intra-African trade by PAPSS, fragmented regulatory frameworks still make it challenging to enable transfers across the 54 countries of the continent easily.
Remittance Regulatory Fragmentations: One major reason for the fragmentations is that different countries impose unique rules, licensing requirements, and compliance standards to protect their citizens and safeguard their payment ecosystem against illicit financial flows. Unfortunately, these well-meaning policies lead to a complicated process that makes it difficult and expensive for international money transfers.
Undoubtedly, effective regulations are essential to safeguard the industry, but their fragmentation makes it difficult for business and innovation. For example, for Flutterwave’s remittance solution to work as intended, we had to invest a lot of time and resources into navigating the regulations governing cross-border transactions in over 30 countries.
Regulatory harmonisation will address this challenge and foster innovation without compromising the ecosystem’s integrity. The Afreximbank’s Pan-African Payment and Settlement System (PAPSS) and the European Union’s (EU) Passporting Rules are real-life examples of such harmonisation.
The EU Passporting Model: A Blueprint for Success: The EU Passporting model allows financial institutions that have obtained a licence in one member state to operate freely in other member states without needing additional licences. This reduces bureaucratic hurdles and encourages people-focused innovations that address key remittance-related challenges, such as high transfer costs. This model is welcome for the following reasons:
Eliminating multiple licences will support the growth of remittance services. It will encourage remittance service providers (RSPs) to focus on improving services rather than navigating complex regulatory procedures. For instance, by obtaining a licence in a specific country or remittance jurisdiction, an RSP can easily expand its services to other countries.
Implementing the passporting approach can streamline the licensing process and significantly reduce financial burdens for companies. This will encourage RSPs to focus on better customer experiences, starting with reducing transfer fees. Furthermore, a harmonised regulatory environment’s main goal is to promote financial inclusion. It will allow RSPs to conveniently operate in underserved regions, providing individuals with secure and convenient remittance services.
Overcoming Possible Challenges from Harmonisation: The path toward regulatory harmonisation is not without its challenges. The most fundamental one includes two questions: “How do we define the remittance jurisdiction mentioned above? And what will be the modus operandi for remittance interactions or integrations between the different jurisdictions?”
At Flutterwave, we believe payment is all about partnerships, and remittance services are no exception. Collaborative efforts between RSPs, governments, regulatory bodies, and industry players will answer those questions, leading to needed insights for overcoming regulatory harmonisation challenges. PAPSS is a great model of how collaboration can pave the way for a new era of cross-border payments.
Beyond PAPSS and other harmonisation attempts, Flutterwave firmly believes the ecosystem must do more to prioritise comprehensive harmonisation. Our call is for a financial landscape where borders are transformed into gateways to shared prosperity instead of being barriers. It’s time for stakeholders to unite and create a new remittance era through regulatory harmonisation.
Falade is a chief regulatory and public policy officer at Flutterwave.
